Multiple choice

A and B share profits and losses equally. They have Rs.40,000 each as capital. They admit C as equal partner and goodwill was valued at Rs. 60,000. C is to bring in Rs. 40,000 as his capital and necessary cash towards his share of Goodwill. Goodwill Account will not remain open in books. If profit on revaluation is Rs. 26,000, find the closing balance of the capital accounts?

  1. 63,000 : 63,000 : 40,000

  2. 63,000 : 63,000 : 60,000

  3. 53,000 : 53,000 : 60,000

  4. 40,000 : 40,000 : 40,000
Reveal answer Fill a bubble to check yourself
A Correct answer
Explanation

Goodwill is 60,000. C's share (1/3) is 20,000. Revaluation profit 26,000 split equally is 13,000 each. A's capital: 40,000 + 10,000 (goodwill share) + 13,000 = 63,000. B's capital: 40,000 + 10,000 + 13,000 = 63,000. C's capital: 40,000.

AI explanation

Total capital of A and B is 80000, and with a revaluation profit of 26000, their total increases to 106000, split equally as 53000 each. C brings 40000 as capital and 20000 for his goodwill share, making the total firm capital 166000. Since the goodwill account must not remain open, C's 20000 is distributed to A and B, increasing their balances to 63000 each. Therefore, the closing balances are 63000, 63000, and 40000.

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